Why are Things Unaffordable ?

With the election of Zohran Mamdani as Mayor of New York, much conversation has been made of his appeal to “affordability.”

As I’ve written previously, this is a noble conversation, but one that has been dishonestly framed (by Democrats and media) to date. I will use Mamdani’s comment in his acceptance speech to re-frame the debate.

We will prove that there is no problem too large for government to solve, and no concern too small for it to care about.

Mamdani and the Democrat party have effectively defined a binary choice: Should government or “the market” control affordability? The Democrats are seemingly all in on expanding the size and scope of government, to the point of eventually seizing the means of production.

First let’s look at the role that government has already played and its effect on affordability. What areas in the economy have seen the greatest increase in costs for the consumer? Education, housing, healthcare, and food. Ironically, these are all areas of the economy that the government has interjected itself in the form of subsidies, regulations, government-backed loans, and transfer payments.

In the 1960s, tuition costs were a reasonable expense. The best and brightest pursued advanced degrees and had good-paying high-skilled jobs available upon graduation. Government-backed loans were buffeted by a competitive “private loan” market.

In 2010, Obama eliminated the federal guaranteed loan program, which had let private lenders offer student loans at low interest rates.  Now the Department of Education is the only place to go for such loans.

With the election of Zohran Mamdani as Mayor of New York, much conversation has been made of his appeal to “affordability.”

As I’ve written previously, this is a noble conversation, but one that has been dishonestly framed (by Democrats and media) to date.  I will use Mamdani’s comment in his acceptance speech to re-frame the debate.

We will prove that there is no problem too large for government to solve, and no concern too small for it to care about.

Mamdani and the Democrat party have effectively defined a binary choice: Should government or “the market” control affordability?  The Democrats are seemingly all in on expanding the size and scope of government, to the point of eventually seizing the means of production.

First let’s look at the role that government has already played and its effect on affordability.  What areas in the economy have seen the greatest increase in costs for the consumer?  Education, housing, healthcare, and food.  Ironically, these are all areas of the economy that the government has interjected itself in the form of subsidies, regulations, government-backed loans, and transfer payments.

In the 1960s, tuition costs were a reasonable expense.  The best and brightest pursued advanced degrees and had good-paying high-skilled jobs available upon graduation.  Government-backed loans were buffeted by a competitive “private loan” market.

In 2010, Obama eliminated the federal guaranteed loan program, which had let private lenders offer student loans at low interest rates.  Now the Department of Education is the only place to go for such loans.

Private lenders (prior to 2010) would lend money based on a risk model, where student loans could be obtained with the lender determining their degree of risk associated with repayment. It didn’t serve their interest to make loans to a large swath of students that might likely not repay the loan. Tuition was mostly held in check, as students and lenders evaluated the cost-benefit analysis of higher education. Universities couldn’t raise tuitions beyond what “the perceived market” for return on investment would support.

Eliminating the private lending market placed government as the sole provider of student loans. The government abandoned risk-benefit analysis and effectively provided loans to anyone and everyone who wanted to attend university. This act ballooned the number of people (qualified and unqualified) who obtained government-backed student loans and removed the “market” pressure on tuitions, causing tuition rates to rise exponentially.

Housing unaffordability has three distinct (government-created) problems.

One: Rent control. New York offers us a glimpse at the impact of rent control programs on price and availability. Controlling rents on some subset of housing creates hyperactive demand on the balance of housing in a generalized area. Wherever rent control has been instituted, rents throughout said market rise above and beyond where “the market” might otherwise settle.

Two: Supply and demand (price controls and regulations). Wherever rent controls have been instituted, local governments (i.e., New York, San Francisco) alternately impose strict regulations on the building and upkeep of housing within said market. These regulations, as we see playing out in Pacific Palisades in California, make it near impossible to rebuild and repair, and they discourage private investment.

Three: Illegal immigration. Unfettered illegal immigration has placed extreme demand for housing above and beyond what the market might otherwise require. Cost supports (transfer payments) to illegal aliens, like government-backed student loans (above), removes some cost pressure against entry for many, causing prices to rise above what the market might otherwise demand, making housing unaffordable in many, primarily urban markets.

Obamacare, or the inaptly named Affordable Care Act, we were told, was necessary to “bend down the healthcare cost curve.” Conservatives, Republicans, health care industry analysts, and economists warned that the opposite would occur, with costs rising and care becoming rationed to curb hospital outlays. This is exactly what occurred, as we see with the debate over Obamacare subsidies as part of the Democrats’ rationale for shutting down the government. Temporary Obamacare subsidies implemented by Democrats in 2021, expiring at the end of 2025, are necessary, say Democrats; otherwise, Americans (and non-Americans) will see a doubling or tripling of their health insurance premiums.

If only someone had warned Democrats that this might occur.

As for health care subsidies to illegal aliens, some untold amount (billions) of federal tax subsidies has been paid out to states as reimbursement for Medicaid outlays. California Medi-Cal (Medicaid) provides full-scope coverage to all children and low income-eligible adults regardless of immigration status, including illegal aliens. Approximately $107.5 billion is reimbursed to California (for Medicaid) with federal funds.

We are informed (again by the shutdown) that 42 million Americans (and non-Americans) receive SNAP (Supplemental Nutrition Assistance Program) benefits. This number rose from 38 million in 2019. SNAP is supposed to be a temporary support program and available to U.S. citizens only. The USDA requested SNAP participation information from all 50 states. Twenty-one (Democrat-lead) states have refused to provide these data. It’s believed that this is due to their payouts of SNAP benefits to illegal aliens.

It is no wonder that Americans are concerned with affordability, but they are sadly mistaken if they think “more government” is the answer. Here’s why.

Government subsidies create a third-party payer economic (pricing) problem.

Prices and products’ and services’ range of quality in a “free market” are arrived at organically, between a buyer (consumer) and a seller (or provider).

Sellers determine the market for their product or service and determine their costs in providing said product of service. They then determine a reasonable profit that justifies the development of a product or the providing (or not) of a particular service.

Buyers are placed in the position of determining the price they’re willing to pay for a particular price or service.

Competition causes other makers or providers to enter a market, if they believe they can make a better or cheaper product. Competition and choice apply downward pressure on costs, helping to ease affordability.

In a third-party payer model (as we see above in education, housing, health care, food, etc.), the buyer has no “direct” incentive to find a better product or service for less money. The money they’re spending is not their money. It’s “other people’s money,” as Margaret Thatcher once opined.

Democrats virtue-signal their care and concern for the American people (and non-American illegal aliens) as they promote the ever-burgeoning expansion of subsidies and transfer payments, because a dependent populace is a loyal (voting) populace. Nothing more. Nothing less.

They’ve systemically advanced Alexander Tytler’s missive in his Cycle of Democracy:

A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship (or communism).

We thus face a binary choice. Democrats want to expand government, up to including seizing the means of production. Republicans must make the case for reducing government subsidies (and removing illegal aliens) and permitting the market to allow for competition to lower the cost of goods and services.

Democrats and media will clamor that Republicans are dispassionate about “the people.” What’s dispassionate is government-produced unaffordability (documented above), leading to the eventual collapse of our economy and our freedoms.

Communism is the end goal of Progressivism, as Cloward-Piven documented in the 1960s. New York has fallen and will eventually implode. The draw to “free stuff” is real.

Republicans must educate the American people that nothing is free when all are in chains.

Image: pasja1000 via Pixabay, Pixabay License.

Related Topics: Economics

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